Schedule C - Profit or Loss From Business
Use Schedule C (Form 1040) to report income or loss from a business you operated or a profession you practiced as a sole proprietor. This form is essential for individuals who run a business independently and are not part of a corporation or partnership.
Who Must File Schedule C?
- Individuals who operate a business as a sole proprietor.
- Statutory employees reporting wages and expenses.
- Certain qualified joint ventures.
- Individuals receiving income reported on Forms 1099-MISC, 1099-NEC, or 1099-K.
What Constitutes a Business?
An activity qualifies as a business if your primary purpose is to earn income or profit, and you are involved in the activity with continuity and regularity. Activities that are sporadic, not-for-profit, or hobbies do not qualify as businesses.
Reporting Requirements
- Enter your net profit or loss on line 31 of Schedule C.
- Include the net profit or loss on Schedule 1 (Form 1040), line 3.
- Also, include the net profit on Schedule SE (Form 1040), line 2, unless you are a statutory employee or notary public.
Special Cases
- Statutory Employees: Report net profit on Schedule C, line 31, and include it on Schedule 1, line 3. However, do not report it on Schedule SE unless you have other self-employment income.
- Notary Public: Do not report net profit on Schedule SE unless required due to other self-employment income. You may deduct one-half of your self-employment tax on Schedule 1, line 15.
- Married Filing Jointly: You may choose to treat the business as a sole proprietorship (report all income on one spouse’s Schedule C) or as a partnership (see Publication 541).
Excess Business Loss Limitation
If you report a loss on line 31, you may be subject to the excess business loss limitation. The disallowed loss is not shown on line 31 but must be reported on Form 461. The disallowed amount is treated as a net operating loss and may be carried forward.
Home Office Deduction
If you use part of your home for business, you must determine the portion of gross income attributable to business use. Subtract related expenses (Schedule C, line 28) from that portion to calculate deductible expenses.
Earned Income Credit (EIC)
If you have a net profit on line 31, this amount counts as earned income and may qualify you for the EIC. Use the instructions for Form 1040, line 27a, and complete Worksheet B. Remember to include one-half of your self-employment tax in the calculation.
Additional Notes
- Schedule C is available for use with Form 1040-SS if applicable.
- For farming income, use Schedule F instead.
- For averaging farming or fishing income over three years, use Schedule J.
Source:
Schedule C (Form 1040) - Profit or Loss From Business
Disclaimer: Always verify details with official Federal or State Department of Revenue Forms and Instructions.